AirSculpt Technologies, Inc. (NASDAQ:AIRS) Q1 2023 Earnings Call Transcript May 12, 2023

AirSculpt Technologies, Inc. beats earnings expectations. Reported EPS is $0.1, expectations were $0.05.

Operator: Good morning, and welcome to AirSculpt Technologies First Quarter 2023 Earnings Conference Call. Currently, all participants are in a listen-only mode. As a reminder, today’s call is being recorded and we have allocated 1 hour for prepared remarks and Q&A. At this time, I’d like to turn the conference over to Dennis Dean, Chief Financial Officer at AirSculpt Technologies. Thank you, sir. You may begin.

Dennis Dean: Good morning, everyone, and thanks for joining us to discuss AirSculpt Technologies results for the first quarter. Joining me on the call today is the company’s Founder and Executive Chairman, Dr. Aaron Rollins and Chief Executive Officer, Todd Magazine. Before we begin, I would like to remind you that this conference call may include forward-looking statements. These statements may include our future expectations regarding financial results and guidance, market opportunities and our growth. Risks and uncertainties that may impact these statements and could cause actual future results to differ materially from currently projected results are described in this morning’s press release and the reports we will file with the SEC, all of which can be found on our website at investors.elitebodysculpture.com.

We undertake no obligation to revise or update any forward-looking statements or information except as required by law. During our call today, we will also reference certain non-GAAP financial measures. We use non-GAAP measures in some of our financial discussions as we believe they more accurately represent the true operational performance and underlying results of our business. A reconciliation of these measures can be found in our earnings release as filed this morning and in our most recent 10-Q when filed, which will also be available on our website. With that, I’ll turn the call over to Dr. Rollins. Aaron?

Aaron Rollins: Good morning, and thank you for joining us on the call today. I’m very pleased with our first quarter results, which included double-digit revenue in case growth and a sequential increase in average revenue per case. Our new center in Orange County California is off to a great start and we are also very excited to announce that yesterday we received final approval to open our flagship center in London. This timing is consistent with what we had planned. We have a full complement of physicians to staff the center, enabling us to perform training cases starting next week and paid cases starting in June. Our next opening will be in Austin, which like Orange County is positioned for a strong launch. We expect to receive our final occupancy permit shortly enabling us to open in the month of May.

Our de novo pipeline continues to remain full. We are confident in our new location opportunities for 2024 and beyond. We’ve been an innovative company and we continue to be committed to our innovation pipeline, which includes new solutions that will lead to incremental patient engagement, which will be available later this year. Finally, as you will hear from Todd, we are making good progress in our cost management initiatives, which will help us fuel our de novo and innovation growth into the future. Overall, our team remains focused and enthusiastic about continuing to strengthen the AirSculpt brand and profitability and scale our business, both domestically and internationally. Let me turn the call over to Todd to talk more about the quarter and our focus for the rest of the year.

Todd?

Todd Magazine: Thank you, Aaron, and thank you to everyone on the call for joining us today. I am pleased with the first quarter results as highlighted by revenue growth of approximately 16% year-over-year, which was nicely ahead of our projections. This growth was led by 15% year-over-year case growth and a sequential uptick in our average revenue per case or our procedure rate, which was about $12,600. As we shared previously, our average rate will have some variability on a quarter-to-quarter basis, due to procedure mix and promotion activities, but we expect it to be consistently in the $12,000 to $13,000 range. Importantly, a significant portion of our first quarter growth was led by our de novo centers that came on board over the past 12 months.

I am pleased with their performance and continue to feel very good about our de novo pipeline going forward. On our last call, I highlighted the three areas that I will be focused on in 2023. As a reminder, they were strengthening the organization by bringing in additional talent and improving our processes; focusing on revenue growth, which includes ramping up our de novo expansion program; and finally, rightsizing our cost structure and strengthening our capabilities to support a much bigger and more robust fleet of centers. Let me first provide an update on our cost management efforts. As a reminder, we committed — to cost savings of $2.5 million for 2023 and a run rate of $5 million as we exit 2023. We brought in an external consulting firm to partner with our team and to help guide us in identifying several areas where we can be more efficient on process and cost.

While we are still in the early stages of this effort, I am pleased to share that we are firmly on track to meet the targets we set. This will be reflected in our margins in the back half of the year. Importantly, these improvements, processes and cost structure will allow us to continue to reinvest in our de novo openings, as well as drive brand awareness activities. For perspective, we made a small investment in the first quarter in a social media influencer and the results were extremely positive. Our goal is to continue to find ways to fund initiatives like this in order to help us drive awareness of AirSculpt amongst our target consumer. As it relates to strengthening our talent, I’m excited to share that we’ve added a new human resources leader, as well as a new information technology leader to our executive team.

The final of my three focus areas is, our de novo expansion plans. As Dr. Rollins noted, this is an exciting time for AirSculpt, as it relates to de novos, in particular, given the fact that we will now have a truly international footprint with the opening of our London Center. I have been spending a significant amount of time on our de novo expansion program, where we have added tools and capabilities that will help us continue to identify new and robust sites across the U.S. as well as continue to expand internationally. This work has given me more confidence that the runway of opportunity for new AirSculpt centers remains extremely robust. Overall, I am pleased with the results of the quarter and continue to feel good about our ability to deliver on our financial commitments to our investors in the balance of the year and beyond.

Before I turn the call over to Dennis, I would like to say thank you to the team at AirSculpt. Both our clinical and business professionals are incredibly passionate about our patients and our company and work tirelessly to help deliver an experience unlike any other in the world of aesthetics. Now let me turn the call over to Dennis to walk you through our financials and our outlook for the year. Dennis?

Dennis Dean: Thank you, Todd. Our revenue for the quarter was $45.8 million, a 15.9% increase over the prior year quarter. Our growth was led by approximately 15% increase in case volumes, which is primarily due to the addition of four de novo centers versus the prior year base. As of March 31, 2023, we operated 23 centers versus 9 at the end of the first quarter of 2022. Our average revenue per case for the quarter was approximately $12,600, a 0.4% increase over the prior year’s quarter and a $400 increase over the fourth quarter, driven primarily by procedure mix. This was within our target range of $12,000 to $13,000 and we expect to sustain this range for the near term. Our cost of services as a percentage of revenue was 39.3% versus 37.1% in the same period last year.

The increase is primarily related to the addition of clinical-related costs to support our growth and our customer acquisition cost for the quarter was $2,360 per case. For the quarter, our adjusted EBITDA was $10.7 million and our adjusted EBITDA margin was 23.4%, which was a decline of 140 basis points versus the prior year quarter, due to increase in expense growth that we have previously discussed. And on a sequential basis, our adjusted EBITDA margin increased by 130 basis points. Our liquidity position continues to be very strong. Our cash position as of March 31, 2023 was $11.3 million and our $5 million revolver remains undrawn. Our gross debt outstanding was $84.5 million and our leverage ratio at the end of the quarter as calculated under our credit agreement was 1.7 times.

Cash flow from operations for the quarter was $6.2 million, which represents an adjusted EBITDA conversion ratio of 58%. And we continue to expect an adjusted EBITDA conversion ratio of approximately 55% for the full year. We invested $3.8 million primarily related to opening new centers and we had a use of cash from financing activities of approximately $700,000. Additionally, consistent with the fourth quarter earnings release, we provided a non-GAAP measure reflecting adjusted net income per share diluted for the quarter of $0.10. We believe this measure represents useful information to investors by highlighting the impact of earnings per share of selected items used in calculating our adjusted EBITDA. We remain on track for healthy free cash flow generation in 2023.

We continue to expect our primary uses of cash flow during the year will be to fund growth investments for the business such as adding de novo centers and driving technology innovations. We also expect to continue to strengthen our balance sheet throughout the rest of the year, positioning us to increase shareholder value. This morning, we are confirming our 2023 revenue guidance range of $187 million to $192 million, representing an 11% to 14% increase over 2022. We continue to expect contributions from our de novo centers to drive the magnitude of year-over-year revenue growth. As previously discussed, we started performing cases this past month at our Orange County location and we are scheduled to begin performing cases at our Austin Center next week.

As Dr. Rollins and Todd mentioned, we are pleased to report that our center in London is approved to open and we will begin scheduling paid cases starting in June. Our remaining two center locations, Raleigh and San Jose are scheduled to open late in the third quarter, which will give us a total of five new centers added for 2023. We are also confirming our 2023 adjusted EBITDA guidance range of $48 million to $50 million, which represents year-over-year growth of 11% to 16% and margins of approximately 26% at the midpoint of both revenue and EBITDA guidance. We expect the second quarter will be our strongest quarter, while we expect the seasonal patterns in the back half of 2023 to be similar to that of the back half of 2022. With that, I’ll turn the call over to the operator for some questions.

Operator?

Q&A Session

Operator: Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.

Operator: Thank you. Our next question comes from the line of Josh Raskin with Nephron Research. Please proceed with your question.

Operator: Thank you. Our next question comes from the line of Korinne Wolfmeyer with Piper Sandler. Please proceed with your question.

Operator: Thank you. [Operator Instructions] Our next question comes from the line of Parker Snure with Raymond James. Please proceed with your question

Operator: Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I’ll turn the floor back to Mr. Magazine for any final comments.

Todd Magazine: Well, that’s it. We really appreciate everybody for joining us today. Have a great weekend and we will talk to you soon.

Operator: Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.